Chinese President Hu Jintao (pictured) rejected President Barack Obama's call to let the yuan appreciate against the dollar, saying the two nations "should respect each other's core interests and major concerns," and affirmed that his country's monetary policy won't be swayed by "external pressure."
Critics charge that the artificially low yuan-dollar exchange rate helped create the financial crisis and is exacerbating high U.S. unemployment. By keeping its currency pegged to the dollar at a low level, China has fed global trade imbalances and in effect siphoned off jobs from other countries, some high-profile lawmakers and scholars argue.
That has put Obama administration under pressure from some members of Congress to label China a currency manipulator, which would pave the way for punitive tariffs. But Hu made it clear that China wouldn't be bullied into making any moves against its own interests.
"China and the United States should properly solve their economic and trade rifts through consultations on an equal footing and jointly uphold the larger interests of China-U.S. economic cooperation and trade," Hu said Monday in Washington, D.C., according to China's official government press agency, Xinhua News.
China depends on the cheap yuan to fuel exports and create jobs for its 230 million potentially restive migrant workers. Despite Monday's posturing, economists and analysts expected the Chinese to let the yuan appreciate in the second or third quarter of 2010 -- though a significant one-off move seems unlikely.
Among 19 analysts surveyed by Bloomberg, more than half say the Chinese central bank will allow the yuan to float more freely against the dollar this quarter. Five expect that change to come by the end of September, while the remainder say it will happen by year's end.
Regardless of U.S. requests, China would likely have chosen to let the yuan appreciate soon anyway, as it needs to manage its runaway economic growth in order to avoid rampant inflation and the prospects of a hard landing.
The Chinese economy may have grown at an annualized rate as high as 11% to 12% in the first quarter, according to many estimates. The danger of such blistering growth is that capital gets funneled into wasteful projects. Much of the unprecedented liquidity injected into China's closed financial system as a response to the global economic crisis has already found its way into that nation's real estate market, where it has led to soaring prices and a Chinese housing bubble.
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